Governance Challenges of Running a Not-for-Profit in New Zealand
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Governance Challenges of Running a Not-for-Profit in New Zealand

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On the 28 June 2011, Hayes Knight invited Kevin McCaffrey, Director of Effective Governance New Zealand, to address the Governance issues crippling New Zealand’s Not-for-Profits. A mixture of board......

On the 28 June 2011, Hayes Knight invited Kevin McCaffrey, Director of Effective Governance New Zealand, to address the Governance issues crippling New Zealand’s Not-for-Profits. A mixture of board members, managers, and CEOs from close to 90 Not-for-Profit organisations attended. This is the presentation from the event.

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  • 1. The Governance Challengesof Running a Not-for-ProfitGuest Presenter: Kevin McCaffrey, Effective Governance Subscribe to specialist Not-for-Profit updates. Visit hayesknight.co.nz/register
  • 2. Hayes Knight Governance Challenges for NFP’s June 2011Kevin McCaffreyPartnerkevin@effectivegovernance.co.nz
  • 3. Contents1. Governance Overview2. Got a Map ? How’s your WoF?3. The Individual Board Member’s Role4. The Board’s Role5. Whats the plan?6. Managing Risk7. Noses in and Fingers Out8. Key Points
  • 4. The Type of Organisation Determines Governance Requirements Commercial Listed CompanyStart-up Mature Regulatory Public Good
  • 5. Organisation Life Cycle influences Governance Transform
  • 6. Governance is influenced by Current Events & Future Demands Degree of Change highAppetite low For high Time low 1 2 3 4 5 (yrs) Risk Start-up Mature high Level of Board Engagement
  • 7. There are 4 Models of Governance1. Agency Model – There is absolute separation of powers, the Board scrutinises Management on behalf of the shareholder, e.g. Listed companies2. Stewardship Model – The Board works with Management to guide the organisation and is actively engaged in strategy and advising the management.3. Resource Model – The Board is considered and acts as a resource for the organisation, networks, representation, skills etc, common in start-ups and Community and Social Organisations – NFP’s4. Stakeholder Model – An emerging model where the Board represents a range of Stakeholders interests and guides the management in balancing their interests, common in Social – Political influencing organisations.
  • 8. The Legal FrameworkIncorporated SocietiesHave at least 15 members and are registered under the IncorporatedSocieties Act 1908. Members associate together for a mutual interestother than the pursuit of profitCharitable Trusts (Charities Act 2005) comprise either1. A Trust where property is legally owned by a group of people (trustees) managed for the beneficiaries of the Trust. The Trust does not have a legal identity2. A Charitable Trust Board is a group of people that holds assets or conducts activities for charitable purposes. The organisation acquires a separate legal identity that is independent of trustees or members Are you a Trust or Trust Board?? Do Check !!
  • 9. What is your Governance Map? Members Electoral Colleges Committees Council RegionsInfluence Branches Over Board JV Volunteers What is the Source of Authority ?
  • 10. Governance Map – XYZ Trust Inc XYZ Trust Incorporated (26th August 1969) JV Trust Board Incorporated Elected from society members at (25th May 1967) each AGMStanding Committees Adhoc Sub-Committees•Women’s committee (Board sub- •Executive remuneration &committee) Elected by Board disciplinary•Finance & Audit •Property•Quality & Risk •Private Service Funding •Positioning / EventsABC Endowment Fund CEO Identify your Source of Authority
  • 11. Governance Structure – who was really in charge? Source of Authority ?? Board of Trustees President Finance Subcommittee Senior Executive Funding Subcommittee Fundraiser Staff Marketing Subcommittee Governance Ad Hoc Subcommittee Volunteers CEO Ad Hoc Subcommittee Planning Ad Hoc Subcommittee Founders Syndrome ?????
  • 12. WoF Check Is your Constitution, Trust Deed up to date? Show it to me !!! Does it meet your current and future needs? Do you know the Source of Authority and the related Authorities (not just delegated authorities) Does everyone know the hierarchy ( parent and child)? Do they follow it? Can you draw it for me?
  • 13. Effective Governance Model ORGANISATIONAL ENVIRONMENT Organisation Legal Constitution Strategy History Type Framework THE BOARD ENVIRONMENT BOARD CAPITAL BOARD ROLES Board Board StrategyCompetencies Behaviours CEO Selection, Monitoring and Knowledge  Personality Evaluation Skills  Values Abilities  Norms  Board- Monitoring Contacts management Board relations Risk Management Dynamics Compliance Policy Framework Board Networking Structures Stakeholder Communication  Policies  Processes Decision Making  Procedures  Committees Effective Governance WORK WITH AND THROUGH THE CEO AND STAFF ORGANISATIONAL PERFORMANCE
  • 14. For Whom Must I Act ?1. Members ?2. Clients ?3. Entity ?4. All ?
  • 15. Basic Duties of a Board MemberFirst duty:To act in good faith and in what the director believes to be the best interests of the Company, Society or Trust. To exercise powers for ‘proper purpose’ Not to allow ‘reckless trading’ To exercise reasonable ‘care, diligence and skill’ May rely on Information from management or professional advisers subject to proper inquiry.
  • 16. Individuals Responsibilities The Fiduciary Principle “One who having been entrusted with powers for anothers benefit is under a general equitable obligation when dealing with those powers to act honestly in what they consider to be in the other’s interests “Fides” – trust, faith, belief, truth confidence Independence, probity, honesty, diligence Duty and Responsibility – The Duty of Good Faith – The Duty of Care – The Duty of Skill – The Duty of Diligence In doing so, they must continually ask themselves the 8 questions;
  • 17. Question OneIs there any conflict? Duty of good faith
  • 18. Question TwoDo I have all the facts to enable me to make a decision? Duty of care Duty of skill Duty of diligence
  • 19. Question ThreeIs this a rational business decision based on all the facts? Duty of care Duty of skill Duty of diligence
  • 20. Question Four Is the decision in the best interests of the company? Duty of good faith Duty of care Duty of skill
  • 21. Question Five Is the communication to stakeholders transparent? Duty of good faith Duty of care Duty of skillSunlight is the best disinfectantArtificial illumination is the best policeman
  • 22. Question SixIs the company acting in a socially responsible manner? Duty of care Duty of skill Duty of diligence
  • 23. Question SevenAm I acting as a good steward of the company’s assets? Duty of care Duty of skill Duty of diligence
  • 24. Question EightWould the board be embarrassed if its decision and the process employed in arriving at the decision appeared on the front page of the national newspaper? (The Sunday morning paper test) Duty of care.
  • 25. Board Member Responsibilities- Cont’d1. Is there a conflict? good faith2. Do I have all the facts to make a decision care skill diligence3. Is this a rational business decision based on all the facts? care skill diligence4. Is the decision in the best interests of the Organisation? good faith care skill5. Is the communication to stakeholders transparent? good faith care skill6. Is the Organisation acting in a socially responsible manner? care skill diligence7. Am I acting as a good steward of the Organisation’s assets? care skill diligence8. The Sunday morning paper test care
  • 26. The Board’s Core Accountabilities1. Setting the Governance Framework2. Strategic Planning3. Risk Management and Compliance4. Monitoring and Fiscal Control5. Policy & Authorisations6. Shareholder & Stakeholder Management, and “Hire the CEO – Accept Their Plan – Fire the CEO”
  • 27. Principles for Corporate Governance ( Securities Commission Guidelines)Governance Principles1. Directors should observe and foster high ethical standards2. There should be a balance of independence, skills, knowledge, experience andperspectives among directors so that the board works effectively.3. The board should use committees where this would enhance its effectiveness in keyareas while retaining board responsibility.4. The board should demand integrity both in financial reporting and in the timeliness andbalance of disclosures on entity affairs.5. The remuneration of directors should be transparent, fair and reasonable.6. The board should regularly verify that the entity has appropriate processes that identifyand manage potential and relevant risks.7. The board should ensure the quality and independence of the external audit process.8. The board should foster constructive relationships with shareholders that encouragethem to engage with the entity.9. The board should respect the interests of shareholders (and stakeholders) within thecontext of the entity’s ownership type and its fundamental purpose.
  • 28. Principles & Rules Governance Framework Governance Principles Charter XYZ Trust •_____ Regulations Constitution •_____ & Rules •_____ Operating Policies
  • 29. Effective Governance Model- Strategy Development ORGANISATIONAL ENVIRONMENT Organisation Legal Constitution Strategy History Type Framework THE BOARD ENVIRONMENT BOARD CAPITAL BOARD ROLES Board Board Strategy Competencies Behaviours CEO Selection, Monitoring and  Knowledge  Personality Evaluation  Skills  Values  Abilities  Norms  Board- Monitoring  Contacts management Board relations Risk Management Dynamics Compliance Policy Framework Board Networking Structures Stakeholder Communication  Policies  Processes Decision Making  Procedures  Committees Effective Governance WORK WITH AND THROUGH THE CEO AND SMT ORGANISATIONAL PERFORMANCE
  • 30. So what is strategy? - Really “ A Commonly held view” “ Its written down” “ Its never complete” “ It needs to guide decision making” “ It’s the stories you hear in the organisation” “Its our Values” Copyright -Effective governance 2010
  • 31. What is your Ambition? TransformYou are here
  • 32. Set Goals to describe the Ambition Vision: Trajectory V Mission Mission: W+W+H Strategy Business Plans Goals & Time Horizons Forecasting Sectors ClientsPerformance Reporting Size Turnover People OUR VALUES etc
  • 33. Strategy – The guts of it = WWH WHAT will we DO? -------------------------- NOT DO – What Services & Offerings will we do – What will we NOT DO Strategy is about saying NO WHO FOR? ---------------------------- NOT FOR – Clients, Funders, Demographics, – Members, Staff, Suppliers – Volunteers, Stakeholders. HOW will we do this? – The Operating Model – Tangible/ Physical Resources – Facilities, technology, products – Intangible resources - people, brands, IP, volunteers This is the core purpose of the organisation
  • 34. Strategy Drives Priorities and ResourcingResearch Values Vision Mission Council Ideas 3 Year Rolling Business Plan Strategic Goals 2011 2012 2013 2014 Members Board Plans 5 Year Plan Strategic Goals Clients Plan 2014 + ServicesManagement Ideas Delivery Model Members Our People Branch Ideas Joint Session of Our Clients Fiscal Goals •Council Stakeholders Stakeholders •Board Our Services •Management Priorities Our Delivery Model Competition To set priorities Our People Annual Plan People Strategic Goals Budget Actual Fiscal Goals Members Environment Risk Appetite Clients Services Regulation Stakeholder Interests Delivery Model Our People Fiscal Goals Stakeholders
  • 35. Effective Governance - Risk & Compliance ORGANISATIONAL ENVIRONMENT Organisation Legal Constitution Strategy History Type Framework THE BOARD ENVIRONMENT BOARD CAPITAL BOARD ROLES Board Board Strategy Competencies Behaviours CEO Selection, Monitoring and  Knowledge  Personality Evaluation  Skills  Values  Abilities  Norms  Board- Monitoring  Contacts management Board relations Risk Management Dynamics Compliance Policy Framework Board Networking Structures Stakeholder Communication  Policies  Processes Decision Making  Procedures  Committees Effective Governance WORK WITH AND THROUGH THE CEO AND SMT ORGANISATIONAL PERFORMANCE
  • 36. What’s this all About? What do we mean by Risk How to Identify and Manage Risk The Role of the Board Source J Bendall
  • 37. Survive & Prosper ! Source J Bendall
  • 38. Firstly a common language is needed …. Risk - the chance of something that will have an impact on objectives. It is measured in terms of consequence and likelihood. Risk Management - the culture, processes and structures that are directed towards the effective management of potential opportunities and adverse effects. Risk Appetite – the amount of risk the entity is prepared to take in pursuit of it’s objectives . Risk Tolerance – the amount of loss the entity is will to bear should a risk materialise.Source J Bendall
  • 39. Services Poorly Reputation / Brand Poor Morale Defined and Motivation Service Standards Loss of Key Staff Slip Possible Risks Competencies Negative Public not Defined Disclosure InadequateBusiness Plans / Budgets Training and Support Not agreed/finalised Fraud and theft - Cash - Information Legal non-compliance - Time - Property Source J Bendall
  • 40. Risk profiling and Reporting helps focus efforts # Tier 1 Risks Catastrophic 3 7Impact / Consequence 20 7 16 14 3 Major 18 14 3 16 4 Moderate 18 Minor 20 6 Insignificant 7 Remote Unlikely Moderate Likely Almost 8 certain Likelihood of Occurrence
  • 41. What can you do about it? High Short Term Action Critical •Reduce •Terminate •TransferLikelihood Low Priority Strategies •Transfer •Accept /monitor •Reduce Low High Impact
  • 42. Responsibility for risk management Stakeholders  Risk management - Policy - Philosophy  Assurance to - Appetite Board stakeholders  Risk profile Risk management  Emerging Issues system Management  Early warnings Ensure accountability Risk aware culture  Current risk profile Employees  Action plan status Source J Bendall
  • 43. The Board’s role Set the “tone at the top” Determine the organisation’s risk appetite/tolerance Approve the risk management policy Approve risk management framework for the organisation Risk and compliance monitoring Survive and Prosper! Source J Bendall
  • 44. Effective Governance Model- So who is in Charge? ORGANISATIONAL ENVIRONMENT Organisation Legal Constitution Strategy History Type Framework THE BOARD ENVIRONMENT BOARD CAPITAL BOARD ROLES Board Board Strategy Competencies Behaviours CEO Selection, Monitoring and  Knowledge  Personality Evaluation  Skills  Values  Abilities  Norms  Board- Monitoring  Contacts management Board relations Risk Management Dynamics Compliance Policy Framework Board Networking Structures Stakeholder Communication  Policies  Processes Decision Making  Procedures  Committees Effective Governance WORK WITH AND THROUGH THE CEO AND SMT ORGANISATIONAL PERFORMANCE
  • 45. The Board’s Core Accountabilities1. Setting the Governance Framework2. Strategic Planning3. Risk Management and Compliance4. Monitoring and Fiscal Control5. Policy & Authorisations6. Shareholder & Stakeholder Management, and “Hire the CEO – Accept Their Plan – Fire the CEO”
  • 46. Its about having Noses in & Fingers Out !!!!!! Degree of Change highAppetite low For high Time low 1 2 3 4 5 (yrs) Risk Start-up Mature high Level of Board Engagement ?????
  • 47. Identify Board & Management AccountabilitiesDepth of Governance Range of Governance Core Governance Strategic Governance Strategy Industry Knowledge Policy Audit Channels Risk Markets Design Compliance Acquisitions Fiscal Alliances Approval Reporting Funding Remuneration Turn Around Governance Change Management Implementation Strategy Stakeholder Mngt Monitor Review
  • 48. Assign Accountability for Audit Ensure Financial Audit is conducted in accordance with Regulations BOARD CHAIR FINANCE CEO CFO External COMMITTEEPOLICY A aDESIGN A a a a auditorAPPROVAL A aIMPLEMENT A a a aMONITOR AREVIEW A a a a a A = Accountable Organisation Wide a = Accountable for a Function/Area only
  • 49. Develop and manage an effective Fund Raising Plan BOARD CHAIR CEO Funding Branch External Manager Fund RaiserPOLICY A aDESIGN a A a aAPPROVAL AIMPLEMENT a a A a A* aMONITOR A? AREVIEW A a a a * Who keeps the money? Branch or Centre A = Accountable Organisation Wide a = Accountable for a Function/Area only
  • 50. Governance Accountability Map Bd Reporting Performance Staff Appnts Governance Stakeholder Fiscal Mngt CEO Appnt Compliance Operations Risk Mngt Volunteer Mktg & Business Funding Manage Promo Audit Plan Mgt BdPolicyDesignApproveImplementControlReview Board Finance Committee Governance Committee CEO Committee means Facilitation of process Planning Committee Funding Committee Marketing Committee Senior Executive recommendation to Board
  • 51. Governance Accountability Structure & Map Source of Authority Board of Trustees President Finance Subcommittee Senior Executive Funding Subcommittee Fundraiser Staff Marketing Subcommittee Governance Ad Hoc Subcommittee Volunteers CEO Ad Hoc Subcommittee Planning Ad Hoc Subcommittee The Founding President Resigned
  • 52. Conclusion1. Check your WoF2. Discharge your four fundamental duties; Good Faith, Care, Skill & Diligence.3. Ask the 8 questions4. A commonly held view = WWH5. Prioritise how to get there – 3 year rolling plan6. Identify and mitigate risk7. Agree Noses in and Fingers out